Southwest Airlines is legendary for its use of the 737 and it could even be claimed that they made the 737 what it is today.  The exclusivity of the 737 to their fleet is also legendary although they have owned subsidiary companies that flew other aircraft.

TransStar Airlines used the DC-9 and MD-80.  Now, as owners of Airtran, they have the 717 (which is really a DC-9) as well.  But all of those aircraft were flown in the subsidiary airline’s livery.

Question:  Can you name the other aircraft that Southwest has flown in their own livery?

The answer after the fold: (more…)

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Well, it’s starting to bubble out in the media that Southwest is close to making an initial order for the 737MAX.  Rumours say it will be a 100 aircraft order.  If negotiations are beginning to finalize, I think it will be for far more aircraft than that.

Southwest currently has 550+ aircraft in its fleet.  Of those, 195 are not Next Generation 737s (-700s).  Those aircraft need to go sooner than later but Southwest only has 133 orders for 737s and of those, 20 are for the -800.  (Southwest also holds 37 options and 98 purchase rights.)

Of the next generation fleet, 370 are -700s and while those seem awfully new, quite a few are getting rather old as well.  Southwest was the launch customer for that aircraft and owns the first one built.  They don’t need replacement in the next 3 to 5 years but they will need replacement in latter part of the decade.

My prediction is an order for 200 and another 200 to 300 options.  I think they’ll choose the CFM Leap56 engine and I think the mix will be weighted towards the 737 MAX 8.   I don’t think the MAX 7 will be ignored but Southwest is growing and it is able to fill the MAX 8 but it will still have a healthy and relatively new fleet of -700 aircraft for its short haul and long/thin routes to use. 

Southwest actually doesn’t generally order “big”.  Typically, they order a few aircraft at a time.  But if they choose the MAX (and they will), there is no reason to not take advantage of Boeing’s desire to get a major airline into the order list.  American Airlines was a hail mary pass and now Boeing needs a credible 737 user to endorse the aircraft.  (Lion Air wasn’t it.)

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Now we see some rumour developing that United Airlines is in talks to make a 200 aircraft single aisle purchase.  This has credence due to the fact that United has about 200 aircraft that are some of the oldest around (these are 757s and 737s mostly from the original United Airlines) and those aircraft are likely having a real impact on the bottom line as a result of fuel costs and maintenance.

I think we’ll see an order and I suspect that order may well go all to Boeing.  It may be named United but it is run by Continental executives now and those executives have found ways to effectively use the 737 on their routes.  Furthermore, I think Boeing may be able to offer earlier delivery positions than Airbus can.

What might we see?  I would look for a sizeable portion to be 737-900ER aircraft with some 737-800s.  In addition, I think we may well see a follow on order for the 737MAX aircraft again in the -800/-900 configurations. 

The current fleet of Airbus A319s are “good enough” and while some of the A320 aircraft are getting older now, they aren’t quite old enought to start planning retirement of until those older 737-500 and 757-200 aircraft are replaced.   About 1/3 of the A320s were delivered in the mid 1990s with the balance showing up from around 2000 and on.  Almost all of the A319s arrived in the early 2000s.  There is maneuvering room left with those fleets.

Airbus will want to keep United but I think they’ll struggle to offering the delivery positions that United will need.  Those positions are needed now and over the next 7 to 10 years.  Airbus has sold most of those positions.  The only way to offer early positions is to increase production even more.

And both Boeing and Airbus are struggling to figure out how to increase their production beyond their plans for production rates that will already be historic for commercial airliners.  It would require another production line and even more suppliers for airliners that are now fairly obsolete in light of the A320NEO and 737MAX.

Look for an order announcement in the next 1 to 3 months and my bet is on a 200 to 250 aircraft order of 737s with about 100 of those coming from the 737MAX line.

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Allegiant Airlines has come to an agreement with Scandinavian SAS to buy 13 more MD-80 aircraft for its fleet. Kind of a yawn announcement, isn’t it?

Allegiant uses the MD-80s and makes a strong profit doing so. They get praised for business model and frugal operating plan and deservedly so.

To a point.

Yes, the capital costs are extremely low. Yes, Allegiant can operate them with density that makes them profitable.

No, Allegiant can’t count on that working for the future. Airtran got started operating extremely old DC-9 aircraft and did pretty well for a time. Then its executives realized that fuel would be an issue and it started buying new aircraft. New, fuel efficient aircraft such as the 717 and 737-700.

Fuel and maintenance costs *will* become an increasing problem for Allegiant. Don’t kid yourselves. The MD-80 aircraft are strong but they are old and they have been ridden hard and put up wet by airlines around the world. That takes a toll.

The smarter move would be to start transition to the *next* cheap aircraft to buy. In my mind, that’s the 737-300. They’re only getting cheaper and they offer a pathway to continue on as an airline. Airlines will be dumping their older 737s in favor of the newest offerings and the older 737s such as the -300 will only get cheaper.

It also offers a pathway into a family of aircraft that can be purchased to fit a variety of needs.

The status quo can be great. But in this case, I think the status quo hurts Allegiant far more than helps in the next 5 years.

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Every airline reporting on its quarterly financial performance last month cited fuel as a major impact to their bottom line.  Airlines saw significantly higher fuel prices this year compared to 2010 and it’s true that it’s a hit to profits.

On the other hand, it’s notable that fuel hedging contributed significantly to their losses on paper.  Why?  Because fuel prices did not go up high enough for those fuel hedges to provide benefit.  Instead, they went down.

The truth is, it isn’t high fuel prices that are killing airlines.  It’s the price volatility that hurts them.  Airlines haven’t been able to plan their costs very effectively for the past 3 years.  Hedging is supposed to “smooth” that volatility and it will except that it also causes paper losses which reflect negatively on the airline when it announces its financial performance.

Is it necessary?  I used to think so.  In fact, I was a big advocate of fuel hedging not because of the windfall profits it provided many airlines for many years but, rather, because it really did make costs stable.  US Airways has stopped fuel hedging and their financial results show that fuel hedging just may not be necessary anymore.  Their profits are not taking a hit from hedging contracts that “lose” money.

In fact, US Airways performance is exceptional when balanced against the challenges it has.  This is an airline that 6 years later is still effectively operating as two airlines (under one name).  It still doesn’t realize that kind of synergies it needs to from its merger.  It has serious impacts from labor groups who cannot agree on what day it is much less on who represents them with the company (this would be the pilots) and it still doesn’t have a combined seniority list with one agreement in place with both the pilots and the flight attendants. 

This airline also flies from far less popular hubs, contracts with far less ideal regional airlines and has far fewer international flights and even if it could fly more international routes, it lacks the equipment to do so.

But the airlines makes a strong profit.  As strong or stronger than the SuperLegacy airlines.  The one thing it hasn’t done is announce major paper losses as a result of fuel hedging.  It might be time for more airlines to roll with the punches.  It’s a highly complex, risky effort that doesn’t appear to be providing the benefits its supposed to.

Fuel price volatility will continue to be a problem.  Airlines need stable oil prices and, frankly, so do the world economies.  However, let’s not forget that fuel is a problem for *every* airline.  They all enjoy the same problem in this area. 

I expect that we will see airlines focus more and more on fuel economy over the next several years.  We’re already seeing it in some airlines such as American Airlines who has finally realized that if it dumps its MD-80 aircraft, it can not only enjoy double digit improvements in fuel efficiency, it can fly more people as well.  That doesn’t mean that airlines with Next Generation 737s or Airbus A320 series aircraft will be dumping their fleet for new aircraft.  They won’t.

It does mean that we’ll see older aircraft from the 70’s and 80’s going away.  Yes, that means MD-80s but it doesn’t mean MD-90s (which use a far better engine).  The other aircraft it points to are those that many may not have considered. 

The 767-200ER is already clearly a candidate for removal and the 767-300 isn’t far behind it.  These are 1970’s design aircraft and with engines of similar caliber.  There are no more improvements and as fuel climbs, these aircraft become quickly unattractive even when completely paid for.  The 757 is entering into this territory as well.  I would expect that we’ll see a number of these begin to be retired or sold off for cargo work.  Again, these are 1970’s aircraft and while their amazing performance lent them a lease on life, they’ve become very expensive balanced against other aircraft that can perform 90%+ of the same missions.

Say goodbye to the older 737s.  I’m talking about the 737-300/400/500 series aircraft.  These are efficient, for their time, but very inefficient when compared to the latest modesl coming off Boeing’s line.  They had a short extension to their usefulness but you will see these depart rapidly from US based fleets over the next 1 to 3 years. 

The oldest A320 series aircraft are now due for replacement as well.  Some are older than those inefficient 737-300 aircraft and no longer have the fuel efficiency that the latest Airbus offerings possess.  They *seem* like a new aircraft.  I’ll point out that the A320 aircraft started deliveries in the late 1980’s (1988) and several US airlines such as United own some of the oldest models. 

Look for airlines to “upsize” their aircraft.  Southwest is doing this by buying the 737-800.  For a tiny bit more in costs, Southwest can fly significantly more passengers on routes that are seeing enormous demand.  They can make more money for a tiny incremental cost in fuel and one additional flight attendant. 

Finally, buying blocks of the A320NEO and 737MAX will make an airline look smart.  It is universally recognized that while oil prices may one day stabilize, they won’t return to $20/barrel.  The airline with the most fuel efficient aircraft will see an advantage.  That’s why I honestly believe we’ll see a large order from Southwest Airlines for the 737MAX.  It’s a good evolution for the airline and it will continue to fit within its business plan for some time to come. 

Why no orders from Southwest yet?  Because Southwest is one hell of a good negotiator and recognizes that they have power in the simple fact that if Southwest buys the aircraft, it’s an endorsement that everyone will pay attention to.  I expect to see an initial Southwest order for 100 to 200 aircraft sometime in the next 6 months.  Southwest will get its deal and Boeing needs Southwest to stamp approval on the MAX.

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The 737 Next Generation Series is the most capable single aisle airliner being built today.  The 737-700 has a true transcontinental capability and the 737MAX aircraft may have trans-Atlantic capability when it is defined and built.

Question:  What was the range and passenger capacity of the first 737-100?

The answer after the fold: (more…)

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Boeing now claims 600 commitments to its 737MAX re-engined airliner and that’s fairly impressive despite the fact that we know that 100 of those come from American Airlines.  But who else is buying is largely a secret so far.  Remember, Delta didn’t order the MAX.  It ordered the 737-900ER citing its needs being more immediate than the entry into service for the 737MAX.

600 commitments to a paper aircraft is pretty good for an airliner so recently announced.  Since Boeing is fairly honest about what it considers an order, we can presume that these “commitments” are formalized in some manner such as orders and/or letters of intent. 

But what is the aircraft.  4 months after hearing that the airliner existed when American Airlines announced its order, we still don’t know much at all about this airplane.  We’ve heard promises that have the 737MAX outperforming the Airbus A320NEO but . . . that’s all they are.  Promises. 

So far, we have no firm definition of what this aircraft really will be.  As the Wendy’s commercial asks:  “Where’s the beef?”

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Richard Aboulafia of the Teal Group has criticized Boeing and Airbus plans to ramp up production on their single aisle airliners and the man has a strong point.  Current demand isn’t from growth, it’s simply from the need to replace aging airliners and the thoughts of ramping up production to 50+ per month does smack of hubris. 

Some airlines do desperately need newer, more economical airliners.  American Airlines is a great example and they’ve made their order.  However, what makes sense for AA doesn’t necessarily make sense for another airline.  Take Delta, for instance.  Delta has a fairly mixed fleet with both Boeing and Airbus products.  What it doesn’t really have anymore is that 70’s/80’s fleet of aircraft with really inefficient engines a la MD-80s and what it does have in that category, it’s getting rid of fast.

But what about the MD-90s, you ask?  Check out what engine is on that aircraft.  It’s an IAE V2500, the same that is sold today on the Airbus A320 series.  What Delta is keeping isn’t nearly as old and inefficient as you think and the aircraft are far less capital expensive than new aircraft are.    Simply put, Delta is replacing exactly what needs replacement and not buying one aircraft more than necessary.

Other airlines are evaluating the options for what they need in the next 15 to 20 years.  Southwest has a fairly new, fairly efficient fleet of 737s and it will want to keep buying new aircraft, too.  But what does it need?  Right now, it needs the 737-800 and it needs it now rather than later.  It needs replacement aircraft for the remaining 737-300/500 aircraft in the fleet and that is being achieved with 737-800s (which  replace 737-700s which then replace 737-300/500 aircraft.)  But does it need the 737-MAX?

Well, yes and no.  It needs the MAX but the airline also is put into an odd position in that it is likely faced with the following scenario:  It will maintain a large fleet of NextGen 737s for the next 10 years or more.  If it buys the 737-MAX, it will need to hold onto those aircraft for about 20 years.  Assuming it can take deliveries in 2017, that means the MAX stays in the fleet for as long as 2037 or longer.  However, Southwest knows that a new single aisle airliner will be available around 2025.  That’s the airliner that it really needs to go deep on.  So, at best, the MAX is an interim solution for airines like Southwest (and Ryanair and others) and you don’t go deep on interim solutions. 

The same is true of the A320NEO.  For most airlines, going deep on the A320NEO is the wrong decision.  Well, for the committed Airbus customer, going deep on the A320NEO isn’t quite as foolish because it is fairly obvious that Airbus *won’t* have a replacement for the A320NEO as soon as 2025.  More likely, Airbus wouldn’t roll such an aircraft out until 2030.  This is why you’re seeing fairly strong orders for the NEO from existing Airbus customers. 

Right now, both manufacturers have deep, deep order lists.  They want to extract as much value from those right now as possible because they know that as soon as they do introduce new airliners, those orders will change quickly.  The market will become flooded with cheap, relatively new “classic” single aisle airliners with a new single aisle airliner introduction.   When the market is flooded with those aircraft, the manufacturers have a much harder time selling customers into their newest and best.   So they want to slim those lists down as much as possible right now. 

The folly is that ramping up production comes with fairly high costs and the only way to justify those costs is to be able to show that you’ll have an order list that will sustain those high production rates.  The manufacturers think the NEO and the MAX will garner enough orders to justify those production rates.  That’s the part that is suspect.  Yes, initial orders are high(ish) but consider this:  Annual production of the 737 and A320 already exceeds 800 aircraft a year.  That’s a lot of aircraft and it wasn’t that long ago when Boeing and Airbus could hardly find a buyer for the planes they were producing.  I’m talking about 2002/2003 time periods which were a result of September 11, 2001 attacks that reduced air traffic dramatically and killed the finances of airlines around the world. 

So, is a growth to 40 aircraft plus or minus a month justified?  Probably.  Almost certainly.  Is growth to 50 or more per month justified?  No and I don’t think the manufacturers are going to commit to that presently.  Right now, Boeing can reach to the high 40’s without too much trouble.  Airbus would struggle with that without making a much larger investment in a new line (such as in the United States.)

The A320NEO and 737MAX aircraft are interim solutions.  That’s it.  Initial orders will reflect some pent up demand to replace aircraft but it’s unlikely that the pace will continue in a sustained manner.  In fact, airlines are being much more prudent in their orders by ordering a few here and a few there to just keep pace with their conservative needs.  We won’t see a need for production rates at 50 or more per month until a manufacturer gets off its duff and builds a new single aisle aircraft.

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Boeing announced the 737 MAX this week and let’s talk about the 737 and its history.

Do you know how old the 737 basic airframe will be upon entry into service for the 737 MAX?

The answer after the fold: (more…)

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Southwest is making it pretty clear that it isn’t all that enamored with the Boeing 717 after all.  While it serves a purpose, Southwest thinks its needs can be met by the 737 in a 137 seat configuration or more.   The 717, in its current configuration, seats 117.

Southwest is a smart airline and they know best what they need.  It’s interesting to me that Airtran has used them effectively but that Southwest doesn’t see any advantages.  Yes, it’s true that the more seats, the more money a flight makes.  It’s also true that the 717 isn’t the most efficient aircraft going around in light of the Embraer 195 and Bombardier CSeries.

But is Southwest really not in need of that size aircraft?   I would argue that ignoring those “third tier” cities any longer may be unwise.  Southwest has the United States covered now and growth will come in the form of either more international flying or finding smaller cities to serve with the right aircraft. 

Why can’t Southwest use a smaller aircraft?  Adding the E-195 or CSeries ought to give them the right sized aircraft for those markets at an operational efficiency they’re accustomed to.  I understand not wanting to “hub” their airline but they already do that in the form of many focus cities.  Besides, those third tier cities are generally “tied” to one or two major cities at most.   For instance, Wichita, KS has ties to Kansas City which is a good gateway city to fly to other parts of the country.   Similarly, why not serve Des Moines, IA or Omaha, Nebraska with flights to Chicago or Denver?

There is no reason why Southwest can’t provide the same kind of route structure connecting these cities much in the same “point to point” structure that it currently uses. 

I suspect that Southwest is going to work with Boeing to unload these 717s in favor of a 737 MAX order but I also think that Southwest won’t be ruling out a different aircraft in the “regional” class from another manufacturer.

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Update:  Southwest says they are *not* one of the airlines commited to the 737 MAX.

It’s official.  The re-engined 737 is approved to offer and Boeing says it has more than 400 commitments to the new aircraft already.  We already know that 100 of those is American Airlines.

But who are the others?  I think it’s a no-brainer that Southwest Airlines is a player in this and I think the strange silence that has suddenly enveloped Love Field is an indicator. 

We also know that one of the players is *not* Delta Airlines since their recent order is for the conventional 737-900ER and while there aren’t conversion rights, don’t believe for a second that Boeing wouldn’t accomodate Delta if Delta wanted them. 

I think the next player is Ryanair.  Not just because they’re Boeing user but also because Michael O’Leary has been incredibly quiet lately.  Few things could keep that man quiet but I think an airliner deal is one of them.  I also don’t think that Airbus is a player with Ryanair.  Neither Airbus nor Boeing is going to be offering firesale prices on these new options but there two factors that offers Ryanair more:  Better fuel and operational efficiency *and* reliability.  The dirty little secret is that Boeing 737s do have a slight advantage on dispatch reliability over Airbus and that makes a big difference for an airline like Ryanair.

There’s a lot we don’t know yet about the updated 737s but one thing being studied is increasing the gross weight of the -9 MAX to be even closer in performance (range wise) the venerable 757s.  That would be an A321 killer.

I also wonder if we aren’t going to see raked wings vs winglets on the new designs.  Boeing already knows how to do them for the 737 (The new P-8 Poseidon has them) and they’re supposed to be better for the really long missions. 

It’s good to see some action on this that isn’t being forced by Airbus and I think we’ll hear about several big deals over the next few months.  Know what will be really fun?  Seeing the 747-8i Boeing livery on a 737 MAX aircraft.

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Delta Airlines has decided to order 100 Boeing 737-900ER aircraft to replace aging 757 aircraft and I’m underwhelmed.  Supposedly the order was won on price and delivery positions and I buy that. 

What does surprise me is that this aircraft doesn’t quite have the transcontinental range one would want unless you buy them with 2 auxiliary tanks and then you’re talking about reduced cargo capacity.  I don’t think these are being purchased to replace *all* 757s and I don’t think this means that Airbus is out of the game for single aisle aircraft. 

I think these purchases are for high density, low fare routes that are being served by 757s.  I also think that Delta will manage its 757 fleet (one of the largest in the world) so that it maintains that kind of lift for some years to come.  That said, some of those aircraft are getting old and its time for them to go. 

In addition, I don’t think this order signals one thing when it comes to fleet planning for Delta.  I do not think it means that Boeing is still the preferred provider.  I do not think it means that Delta is going to harmonize its fleet more.  I think it simply means that Delta needed 100 aircraft with seating for about 180 passengers and that’s it. 

Any guesses are just that:  guesses.  I suspect that Delta remains in negotiations for replacement aircraft for other parts of the fleet and I think that that does not include negotiations with Bombardier for its CSeries aircraft.  Whatever second part of this single aisle order is, I firmly believe it will belong to Airbus or Boeing.

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Various media reports point to Boeing leaning heavily towards a “minimum” investment strategy in defining what the new Boeing 737 Re Engine would look like. 

That means an aircraft that receives enough modifications to handle the heavier CFM Leap56 engine with a reduced fan diameter which should make the 737 models roughly equivalent to the Airbus A320NEO with about 2% cost efficiency advantages over the A320NEO.

My problem with this is that it simply confirms the Airbus A320NEO as the right move and offers Boeing little advantage over the next 10 to 15 years and possibly puts it at a disadvantage over that time frame since there are fewer areas to incrementally improve performance of that airframe over time.   One example is that the 737 already has winglets (aka “sharklets” on the A320). 

In addition, this is the creeping incrementalism that we saw at McDonnell Douglas over nearly a 2 decade time period that led to their ultimate demise.  Aircraft manufacturers don’t win over the long term with derivatives and I’ll point out that there have been a total of 9 major derivatives of the 737 with several sub-derivatives of those as aircraft as well.  That’s an aircraft that has run its course without something game changing.

If it were to be a Re Engine strategy, it would have been far more encouraging to see Boeing design a new wing or a modification to the wing to bring additional gains.  It would have also been more encouraging to see a modification to the nose gear to permit a full on adoption of the CFM Leap56 and, possibly, even the addition of a 2nd engine choice (Pratt & Whitney GTF).   Yes, that begins to look like a new airliner but it puts Boeing firmly ahead in the narrow body game.

My own preference was to see Boeing make a move for an entirely new aircraft with introduction into service in 2018.  It would have been a difficult challenge but it is one that Boeing is in position to achieve.  It’s learning curve with new materials and design approaches has peaked. 

Offering that you couldn’t figure out how to immediately ramp up production to 40 to 60 aircraft a month is a somewhat lame excuse for backing away.  If you can build if efficiently at current production rates (in the mid 30’s per month), you can figure out how to build it at a 60+ aircraft rate when that time comes.

This, in some ways, smells like Boeing trying to maintain the older airliner to use as an replacement for aging military aircraft such as what they’ve done with the 737 in creating the Boeing P-8A Poseidon (replacement for the venerable P-3).   It’s notable that even that aircraft got a better wing in the form of having raked wingtips a la 767-400ER for longer duration, efficient flying.

My greater point is that you don’t win and you don’t grow as a company by playing “keep up” and playing it safe.  Airbus managed a coup by forcing Boeing’s hand and scaring them away from a new design.  Somehow, I severely doubt that a Boeing led by someone such as Alan Mulally would have adopted such a strategy.

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Airbus has racked up over 780 firm orders for the A320NEO since announcing its availability and even I have to say that I’m quite surprised at how fast that happened.  It would appear that airlines vocalized a desire for a new aircraft and ordered the re-engine like it was the best thing to happen since the Concorde.

There is absolutely, positively, no question that Boeing needs to get back in the game ASAP.  Theoretically, they did with the American Airlines order but . . . both Boeing and all other airlines have largely been silent on the 737RE since that order.

I was certain that we would hear other airlines grumble about being kept out of the loop or shout with joy that they, too, wanted to order the aircraft.  Instead, we learn at Southwest Airlines’ earnings call that they were kept in the loop and . . .

Nothing.  They were kept in the loop and  they endorse the aircraft but no other talk of an order.

The 737RE doesn’t have board approval to offer . . . yet .  However, in this particular case this really is a formality.  The lack of any other orders even getting mentioned as rumours tells us just how fast the AA deal was put together.  No one else is any farther along. 

I repeat, Boeing really needs to get back into the game.  Numbers are perception and Boeing knows how well it did when it was running up the 787 numbers in the early days.  Perception is as important as facts when it comes to whether or not an airline views your aircraft as leading edge.

Right now, we don’t even know what the 737-RE will be called and that’s kind of bad.

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As much as Boeing and Airbus would like to think so, they don’t.  If anything, I think they’ll promote the CSeries and I think they’ll encourage Embraer to go bigger. 

Look at the seat numbers on these aircraft.  The A319 and 737-700 seat roughly 135 or more passengers.  The A318 is a very poor candidate for the NEO and the 737-600 really isn’t offered anymore.  Neither works for mainline service very well because they’re heavy for the number of passengers they carry and their range just isn’t needed for routes requiring those passenger numbers.

Sub-130 seat routes aren’t going to be long and thin transcontinental routes.  To the contrary.  They’ll be the routes they are today and the routes we see developing even now.  They’ll be from Wichita, Kansas to St. Louis or Knoxville, TN to Chicago.  

And there is no airliner being offered that quite gets the airlines there. 

Airlines such as Southwest realize that a smaller airliner is probably necessary for growth now that they have the nation’s largest cities essentially covered.  Boeing and Airbus don’t make that airliner and they don’t plan to make that airliner.  But it’s needed.

And Bombardier is making the aircraft.  Embraer is considering what to do next when it comes to either re-engining its E series aircraft or building a new airliner (and I think they’ll build a stretched E195 with new engines, frankly.

An airliner series with practical passenger capacities ranging from 90 to 130 seats is just what these airlines need.  And legacy and SuperLegacy airlines will need them too if they don’t get their pilots to agree to revised scope clauses.

That leads us to another reason why that class of aircraft is needed.  Even if the legacy and SuperLegacy airlines get pilots to agree to new scope clauses that permit them to engage regional airlines for that 90 to 130 seat flying, somebody has to buy the aircraft and fly them. 

ERJ-140 and CRJ-200 aircraft are not going to be practical going forward.  They’ll hang on for a bit longer but they are going away because they are fuel inefficient and they’re getting old to boot.

Now that airlines know what is going to happen with both the Airbus A320 series and Boeing 737 series aircraft, they can start shopping for that next class of aircraft that permits entry into those smaller markets cost effectively.

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I wrote a long blog post early yesterday morning about American and the rumoured order it was about to make.  Then, later in the day, the rumours started flying that it would announce the order today (Wednesday).  And, boy, did they.

Let’s look at the details first:

• 460 aircraft on firm order with both Boeing and Airbus
• Boeing sells AA an additional 100 current 737NG aircraft.
• Boeing sells AA 100 737RE aircraft with the CFM LEAP engine.
• AA takes another 40 options for the 737NG and another 60 options for teh 737RE.

• Airbus sells AA 260 A320 Family Aircraft
• 130 are for current generation A320 family with the sharklets to be introduced in 2012.
• 130 are for A320NEO aircraft (with arrival in 2017 and so much for talk that the A320NEO line was sold out.)

The aircraft will begin arriving from both lines in 2013 and American Airlines thinks it will have one of the youngest fleets in about 5 years.

So what does it mean?  Well, for one, the cost to announce this order was tiny compared to a traditional order.  These aircraft will be on operational leases and it appears AA didn’t have to put much money down for these firms orders (if any.) 

This order will be of dramatic benefit for the airline when it comes to saving on fuel.  If AA had a fully modern fleet now, it’s likely it would not have lost money this past quarter.   The benefit in fuel savings on this order will take a while to be realized. 

This is the first official mention of a 737 re-engine and I think we’re going to see some gnashing of teeth on the part of some airlines over the idea that a fresh design is likely 10+ years away.  This might be good for AA, it isn’t good, necessarily for Southwest Airlines or Ryanair.

This is a big win for CFM and its LEAP56 engine and while the engine is only announced for the 737RE, it is almost certain that that engine will be chosen for the A320 family.

What this isn’t is a loss for Boeing.  The post I composed and just deleted talked about how having a single source for your aircraft wasn’t really practical for an airline of AA’s size and all other SuperLegacy and Legacy airlines operate mixed fleets already as a function of a merger.  What those airlines have learned is that neither Boeing nor Airbus has a supply chain that can meet all their needs all of the time and on time.  It wasn’t irrational for AA to go to Airbus.

However, this is a pretty big loss for Boeing in the psychological warfare arena of aircraft sales.  This will be spun many ways but at the end of the day, Boeing got bruised and is not the aircraft manufacturer who gets to crow about success today.  Expect other SuperLegacy airlines to take a long, hard look at this deal and begin to negotiate for their own SuperDeals on aircraft with both manufacturers. 

Why did Airbus win more orders?  Because AA already has a large 737 fleet.  It didn’t need quite as many 737s.  This really is an order of equals practically speaking. 

I do think the A321NEO will be the 757-ish replacement and I do not think that AA will upsize aircraft to the 737-900ER down the line.  Therefore, I think the A320 family order will be either

A) A full mix of A319/320/321 aircraft with multiple bases or

B) A320/A321 aircraft with focused bases

I rather doubt that the A319 or the B737-700 will be ordered at all.  This order is about a marginal increase in capacity over time for most routes with the 757s leaving ever so slowly over time. 

And that points out a glaring gap that I haven’t seen anyone talk about yet.  Through this order and previous small orders, American Airlines will have upguaged their entire fleet and particularly so in the next 5 to 7 years.  Presently, the smallest aircraft in its fleet will be the 737-800 or A320 at roughly 160 seats.

What serves the 120 to 150 seat range?  The MD-80’s are departing and rightfully so.  American Eagle has CRJ-700s that are configured from 63 to 65 seats and AA is currently scope clause limited on how many of these aircraft it can fly.  Now, AA has also announced that it will spin off American Eagle soon and we’ll talk about that in a future post but that only means AA can (and will) access other regional airlines for its sub-100 seat flying.

What fills the gap?  If AA manages to get a new pilot agreement that allows AA to subcontract its sub 150 seat flying, I’ll be rather shocked.  I do not think the pilots are going to cede that territory under the current contract or whatever agreement is made for the near future. 

I realize that AA has been serving markets that might demand a 120 to 130 seat aircraft with higher frequency using smaller jets but it can’t do that forever.  Is there another order for aircraft lurking in the background here?  Maybe.  The Bombardier CSeries does fit that whole very nicely and does it in harmony with this announced order.  In fact, it presently is the only airliner that does.  Embraer gets close but it doesn’t quite get there.   If I were Bombardier, I would be knocking on American Airlines’ door with a most excellent finance package for its CSeries CS100 and CS300.

There is one more question lingering as well . . .

How will American Airlines paint its A320 family?  The aircraft cannot be polished like its 737 counterparts.  I strongly suspect we’ll see a metallic silver used with the current paint scheme over that.

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Boeing Commercial Aircraft President Jim Albaugh met with American Airlines executives, including CEO Gerard Arpey, a couple of days ago and I think, tentatively, this is a positive development with Boeing.  On the surface, it certainly signals that Boeing does consider American Airlines a very important customer.  It *might* signal that Boeing has started to realize that airlines really aren’t just poking at them over a new single aisle aircraft.

I say might because there is a tendency for Boeing to not always recognize that a customer really is at risk until the very last moment. 

Nevertheless, Boeing presidents don’t go calling on just every airline executive team on a whim.  It would be my hope that Boeing got an earful on what is needed and, more importantly, the timing for meeting that need.  For about a year, all we’ve heard is trade studies about re-engining vs new single aisle aircraft and that things tilt a bit towards an all new aircraft for 2019. 

I think airlines would like to hear about a new single aisle aircraft kicking off development asap with entry into service around 2017.  There is probably some wiggle room there but only after commitments have been made.

While news reports say Albaugh visited American Airlines, I do wonder if Southwest wasn’t visitied as well.  If not, I expect we’ll see another cannon shot across Boeing’s bow from SWA in the near future.

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One consequence of the A321NEO is that everyone is talking about it being a Boeing 757 replacement.  Everyone talks about how the 757 fleet needs to be replaced and I think quite a few people are missing the point on the 757.

It’s an aircraft conceived of in a regulated era, born in a deregulated era and an airplane that has never really been part of a family of aircraft.  It’s a red headed step child that despite its status, airlines found a use for it.  It was built with too much range, too much power and for an airline model that didn’t include hubs and frequency.

Everyone talks about airlines needing to replace their 757 fleets and its true that these airliners are now old by any standard and will need replacement in the fleet.  But the one thing we shouldn’t do is assume that the mission being served by the 757 is the mission that airlines want to use their next aircraft for.

I’m not sure there needs to be a 757 replacement.  I’m also not sure that we don’t need a 757 replacement.  The original missions that Boeing conceived of for the 757 are not the missions that airliner served primarily.  It would be a mistake to assume that airlines want to replace 1000 757s that are serving long, thin trans-Atlantic routes or trans-continental routes.  They don’t.  Airlines simply found that they could use that expensive asset on those routes and earn money.

But airlines may well have already identified how they want to serve that mission in the future and it may well not resemble anything close to the current 757.

Boeing is right to let the airlines define the missions.  The next Boeing 757-like airliner to come from Boeing will be from a family of aircraft and it never really was the 737-900ER even though that airliner can serve in place of the 757 on most domestic routes.

I don’t think we’ll ever see such a hybrid airliner made again.  Can you imagine Boeing or Airbus sizing an aircraft to fit a smallish market and then providing it with over-powered engines?  I can’t.   Building a family of airliners is about tailoring the aircraft to fit the missions very well and todays missions are very different than they were even in the 757s heyday.

Don’t expect the A321NEO to be a 757 replacement.  Expect it to be an excellent coast to coast airliner for longer, thinner routes between those cities.  I don’t think it will be used for Hawaiian and trans-Atlantic routes in great numbers although it may get employed on a few of those missions if it can work and make an airline money.

Who says airlines want to fly such an aircraft to all kinds of cities in Europe?  I don’t.  In fact, I think that airlines aren’t that interested in such routes (they may be profitable but only just so) being served by such small aircraft.  Such routes don’t yield a very attractive number of dollars on a daily basis and they do come with risks to that profit that airlines don’t enjoy (fuel stops, for instance).

I would also point out that the engines needed for a “true” 757-like replacement don’t exist today.  There are no new next generation engines in those thrust ranges at this time and I’m unaware of any real plans or needs for such in the next ten years either.

But if airlines want a 190 seat trans-Atlantic capable airliner that is efficient and reliable, they’ll communicate that to Boeing and Airbus.  The fact that Airbus and Boeing aren’t running around and chatting up such an idea kind of indicates to me that that requirement really isn’t in the top 5 airline mission requirements being talked about today.

The next generation of single aisle airliners will be different than the current generations because those missions evolve.  Airlines will be asking for something different than just a better 737-700 replacement.  They’ll be asking for a range that will serve their current and projected future needs and that will define airliner families that look very different from the Boeing 737 and Airbus A320 series.

If anything, I think the mistake Airbus made with its NEO development is that it is only offering better engines, not a better aircraft.   It won’t have a better cockpit, better seat layout and it won’t be lighter or more durable or more reliable.  That’s where Boeing can really zing Airbus and where it should.

However, for Boeing to do so, they have to, you know, announce the damn project and get on with it.

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American Airlines apparently is playing the Ryanair game with both Boeing and Airbus by using a 250 aircraft orders as both a carrot and a stick. And now we know why John Leahy was hinting at Boeing losing a major network carrier.

Make no mistake, this really would be a very big loss for Boeing.   The question is whether or not Boeing is taking American seriously in this.  Some might be tempted to think it’s a bluff, I do not think it is anything resembling a bluff.  The A320NEO is something that American needs more than most network airlines. 

Instead, this is a “put up or shut up” move to Boeing and I’ll wager that it won’t be the last.  Airlines want to know what Boeing is going to do and waiting very much longer is likely going to result in either more orders for Airbus or renegade orders to Bombardier and Embraer. 

And Boeing can’t be just a medium to large aircraft builder.  It needs this single aisle market for many reasons and the airlines are dissatisfied with Boeing’s tentative approach to what it plans to offers airlines next.  To be fair, even the 737NG is getting a bit long in the tooth and promising incremental improvements isn’t going to satisfy airlines anymore.  Much like the new and improved A330 that Airbus tried to sell many years ago didn’t fly either.

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Last Thursday, there were a number of reports (mostly based on a Bloomberg report) that said that American Airlines was in discussions with Airbus to buy 100 A320 class airliners. 

As you can imagine, this spurred quite a bit of speculation.

Many have the incorrect idea that AA is contractually committed to buying Boeing only.  They are not.  There is a gentleman’s agreement that has been followed since the 1990’s that has had AA getting preferred aircraft pricing and early slots  in return for remaining an all Boeing customer.  There is no financial penalty for walking away from this except what AA might not get in preferred positions and pricing.

And I’m not even sure that exists.  The truth is, AA is big enough to get preferred pricing and early slots regardless.  They wield enough buying power to make any aircraft manufacturer sit up and pay attention.  So it doesn’t hurt for AA to talk to Airbus.

Is the Airbus A320/A321 the right aircraft?  Quite possibly.  The A321 will do a better job of fitting AA’s requirements for a Boeing 757 replacement compared to the equivalent 737-900ER.  It will fit almost all of the missions the 757 is currently serving (except for trans-Atlantic flights) and it will do it with pretty good efficiency compared to what Boeing is offering right now.

Are they serious?  Well, I wouldn’t be surprised if this was both a warning shot over the bow to Boeing as well as a serious discussion.  American Airlines really does need a better fleet going forward and it cannot afford to wait until 2019/2020 to get started.  The 737-800 is a good fit as a MD-80 replacement but not as a 757 replacement.  Boeing’s 737-900ER has worked well for Continental but I don’t think it would work too well for American because of range and payload.

American needs better seat mile costs on its routes and it can achieve those because it can fill its aircraft with business passengers.  Diversifying between manufacturers isn’t a bad idea anyway as it makes things just a bit more competitive and the airlines probably gains from that.

This may well be the “major network carrier” that Airbus COO John Leahy has spoken of with respect to the A320NEO.  If it is and if there is an order, it will be a major blow to Boeing.  Not because Airbus invaded the United States (they’ve already done that) but because AA would be regarded as one of Boeing’s most solid customers.

I wouldn’t say this is a done deal but I would say that we now have reason 998 why Boeing should, you know, get with the program.

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